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Owning a home for unmarried couples

It’s Valentine’s Day and love is in the air. Some see it as the perfect time to propose, or to suggest moving in together. It seems likely that anyone deciding today’s the day will be motivated by love rather than money. But it’s worth knowing what getting married – or entering into a civil partnership­ – means for key elements of your life.

Banking

Your marital status won’t have any impact on your day-to-day banking. You can hold a joint account with anyone from your spouse to the postman, and it will be run in exactly the same way. When you open the account you need to choose whether to run it either on a single-signature or all-signature basis – in other words, tell the bank whether to honour payments on one person’s say-so, or whether it should only do so if you both make the request. Whichever you choose, you will be jointly responsible for any overdraft – if one person vanishes the other will owe it all.

Inheritance tax

Inheritance tax is where there is “a big difference” between marriage and cohabiting, says Wynne Thomas, a senior partner at law firm Dawsons. If you are married or in a civil partnership you can leave all of your assets to your partner without him or her facing a tax bill. If you are living together, you can leave up to £325,000 of assets tax free – anything above that will be taxed at 40%.

Married people, and those in civil partnerships, can also leave up to £325,000 to other friends or relatives, and, since October 2007, they have been able to share this allowance. So if a husband dies and leaves £50,000 to a son, and the rest to his wife, his wife will be able to use the rest of his allowance, meaning she can leave £275,000 on top of her own £325,000 before her heirs face a tax bill. This isn’t available to the unmarried.

“There’s no way to put yourself in the same position as if you were married – you can’t manufacture a spousal exemption,” says Thomas. “One potential way to deal with it is to set up a life insurance policy that will pay out enough to cover the bill when you die, but that will be expensive.”

Capital gains tax

Unmarried couples are also treated differently when it comes to capital gains tax. Spouses can give each other assets without being taxed (at 18%). And, if one has made a gain greater than the annual £10,100 CGT allowance, they can transfer some assets to their partner before the sale and use some of his or her allowance. This is allowed only if the couple live together in the relevant tax year.

Co-habiting couples can’t transfer assets in the same way. If one partner decides to give the other a half share in a buy-to-let property they own, for instance, he or she will have to pay tax if the value of that share has increased by more than £10,100 since it was bought.

But the unmarried can use the rules to their advantage, says Matt Coward, of accountants PFK. For a start, if they want to reduce their CGT bill they can transfer assets which have made a loss to their partner, and offset the loss against other gains.

“Also, a married couple can only have one main residence, so if they own two homes they could end up paying CGT when they sell one. A co-habiting couple can have one owned by one partner and designated their main residence and one owned by the other, so they would effectively double their allowance,” he says.

Home ownership

“You need to be very careful about how you own your property if you are unmarried,” says Marilyn Stowe, senior partner at Stowe Family Law.

Unless you live in Scotland, where there are laws regulating what happens to property when a cohabiting couple splits up, if you split up with someone you live with, your right to the property will depend on how you own it. “If a joint purchase, it will be presumed that the net proceeds will be divided equally – even if one partner has put more money in,” says Stowe. “If one of you is the sole owner, the court will say it belongs to them. If you have contributed to the mortgage, you’ve got to prove it.”

In contrast, if a married couple splits, the court will consider all of their assets, including their family home, regardless of how it is owned, when deciding what will be a fair settlement.

Co-habiters could opt to own a property as “tenants in common”, a legal arrangement which allows them to own an uneven portion of the property each, reflecting who has contributed what. If they die while still in the relationship, but without a will, their share will not automatically go to their partner.

The way to make sure that the right things happen is a declaration of trust, a legal document which outlines who has put what into the property and how any proceeds will be shared if the relationship breaks down.

Children

Whether or not you are married will make a difference when you have children. When a child is born to a married couple both parents are assumed to have “parental responsibility”.

This allows them to make choices about how the child is raised. If parents are unmarried only the mother is assumed to have parental responsibility. Fortunately, this is easily changed.

Since December 2003, all that an unmarried father has needed to do to get parental responsibility is to be registered as the father on the birth certificate. While a married father can register the birth alone, an unmarried one must attend the registration alongside the child’s mother.

Fathers of children born before December 2003 can get parental responsibility by marrying the child’s mother, making an agreement with the mother or applying to court.

Without parental responsibility, an unmarried dad will not be assumed to be the guardian should the mother die, unless she has named him as guardian. However, fathers still have to provide maintenance payments for the child if the couple separate, even if they have not been registered on the birth certificate.

The difference a will can make

Writing a will takes on extra importance if you are not married. Although the government­ is in the process of consulting­ on a rule change in England and Wales, currently, if you die intestate your partner will not automatically get any of your assets. Instead, they will go to your children, parents or siblings, and your partner may be forced to go to court to fight for a share.

You can remedy this by writing a will in favour of your partner. This will allow you to pass on, to him or her, your share of any property you own as tenants in common, as well as any other assets. If you think you might eventually tie the knot, you should include this in your will. Unless it is written “in consideration of marriage” or civil partnership, it will not be valid once you’ve walked down the aisle. Even if you do not need to rewrite your will because of a change in your marital situation you should review it regularly to make sure it is up to date.

Stowe Family Law LLP is authorised and regulated by the Solicitors Regulation Authority. SRA ref 469401.
Stowe Family Law LLP is registered with Companies House, ref. OC331570, and registered for VAT, number 918 5722 04.
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